Is There a Battle Heating Up Over Your Retirement Account?

Right now, there is a battle heating up over your retirement account. It has to do with tax breaks on your contributions, and whether your earnings are tax deferred. The new proposals regarding contributions don’t really affect me, since my husband and I are all about the Roth IRA, and we don’t have an employer-sponsored plan. But I know that there are plenty of other folks out there whom this would affect. Jeremy at Gen X Finance offers this:

If you currently save in an employee-sponsored retirement plan, how would you feel if you stopped getting a tax break on your contributions? What if your employer stopped matching because they lost their tax break to do so? On top of that, what if you were forced to contribute 5% of your pay into government bonds regardless of age?

These are very interesting “home” questions.  The meager savings rate we have in this country is due in large part to the tax benefits of a retirement account. If those are taken away, that could pose very real problems. Of course, the solution to the fact that people would inevitably stop saving in the small ways they are right now is to force retirement savings. I have to agree with Jeremy when he points this out:

In addition to the elimination of tax breaks, the plan calls to make contributions mandatory. Now, I’m all for encouraging people to save money, but making 5% mandatory doesn’t sit well. We already have a mandatory retirement contribution that we all make, and it’s called Social Security.

The good news is that few lawmakers are consideringthis seriously. But the fact that it is “out there” is worrying. And with concerns about the deficit, a plan like this would be a convenient way to force a little more money into federal coffers. And who knows? If the idea does gain traction, it could be slipped into a bill aimed at a retirement account plan pushed by President John McCain or President Barack Obama. (See more on their economic proposals here.)

Now is not the time to relax our vigilance. Indeed, the sheer amount of stupidity coming out of both parties with regard to economic issues that affect personal finance requires that we start paying attention.

image source: sxc.hu